SUPPLY CHAIN

OPERATIONS:
PLANNING AND
OUTSOURCING
Lesson 2
 SUPPLY CHAIN OPERATIONS:
PLANNING AND
OUTSOURCING
Supply Chain Operations
Companies perform operations in one or more of
these four activity categories;
Sales and Operations Planning (S&OP) coordinates
these operations
This chapter looks at Plan and Source activities
four activity
categories
Forecasting
Forecasting is a technique that uses
historical data as inputs to make informed
estimates that are predictive in
determining the direction of future trends.
Businesses utilize forecasting to determine
how to allocate their budgets or plan for
anticipated expenses for an upcoming
period of time.
Four Forecasting Variables
Four Forecasting Methods
 Aggregate Planning
Once demand forecasts are created, the next step is to
create an aggregate supply plan for the company to
meet product demand
There are three basic approaches to use in creating the
aggregate supply plan:
1. Use production capacity to meet demand – align production
capacity to meet demand, add/remove production capacity
so that 100% of capacity is utilized.
 
2. Use varying levels of total production capacity as needed to
meet forecast demand, plan to keep extra production capacity
in reserve to use as needed

3. Use inventory and work-in-progress inventory to meet

demand, build up extra inventory as needed to meet
forecasted future demand.
Product Promotions
 Three Kinds of Inventory

1. Cycle Inventory – amount of inventory needed to

satisfy demand in periods between replenishment

2. Safety inventory – buffer against uncertainly in

demand and order lead times

3. Seasonal Inventory – built up in anticipation of

expected increases of demand at certain times of
year.
Cycle Inventory
1. On-hand inventory to meet
forecasted customer demand
2. More efficient to make few large
orders instead of many small orders
3. Actual customer demand usually
continuous small purchases
4. Companies attempt to balance
usage with ordering cost and carrying
cost
Safety Stock Inventory
Four ways to reduce safety stock:
1. Reduce demand uncertainty (better forecasts)
2. Reduce order lead times
3. Reduce order lead variability
4. Reduce product availability uncertainty
Seasonal Inventory
 
1.When there is fixed production
capacity companies may stockpile
inventory in anticipation of large future
demand
2. Driven by desire to best utilize
available productive capacity to meet
forecasted demand
3. Calls for manufacturers to offer price
incentives to distributors to purchase
product before actual demand occurs.
 Five Procurement Activities

1. Purchasing - Routine issuing of purchase orders for

needed products
- Direct or strategic materials for making company
product
- Indirect or maintenance, repair, and operations
(MRO)
2. Consumption Management – monitor product usage
3. Vendor Selection – identify appropriate suppliers
4. Contract Negotiation – define products, prices, and
service level agreements (SLAs)
5. Contract Management – track supplier performance
and adherence to contract terms and SLAs
 Credit and Collections
Set Credit Policy
- Management sets credits policies to attract customers
- And also manage receivables risk
Implement Credit and Collections Practices
- Analyse potential customers to screen out those who
won’t pay
- Work with sales people and customers to collect
payment for products delivered by company 
Manage Credit Risk
- Find ways to lower risk of selling to new customers
- Create credit and financing programs to fit customer
needs
- Review and revise customer credit status over time